Property Tax Appeal Threatens School Funding

The “Dark Store Theory” has already wreaked havoc in other states, led by Walmart and other big box retailers looking to reduce their property taxes.

In the appeals, the big box owners claim their fully functioning store should be valued as if it is closed and vacant. They argue neither the cost to build a store, nor the income it generates should be considered; and the assessed value should only be based on what the building would sell for on the open market.

Because these buildings were built for a specific use, and usually come with restrictions preventing a competitor from using the store in the same way, the sale prices are often much lower.

The dark store argument has seen some success in the midwest, resulting in billions of dollars in lost revenue for counties and states including Michigan, Indiana and Wisconsin, but this is the first time Walmart has attempted to use “dark store theory” in its home state. The company filed a petition with the Pulaski County Court challenging the county assessor’s assessment of eight Walmart stores and two Sam’s Clubs. The retailer wants to reduce $145 million assessed value down to $74 million, which would drain $900,000 from local property tax collections each year. This means the county would have less money for schools, roads, and other vital public services.

Good Jobs First, a nonprofit research organization that promotes accountability in economic development, investigated Walmart’s aggressive attempts to reduce their tax bills. They found the company takes a systematic approach to challenge assessments across the country, costing local governments millions each year in lost revenue. From the 2007 report:

“Our findings are consistent with Wal-Mart’s reputation for obsessive cost-cutting; they suggest that the company treats property taxes the same way it treats suppliers and workers. But in this case, entire communities are affected. For only two things can happen when large companies like Wal-Mart reduce their property tax payments: either local public services are cut back or small businesses and homeowners are asked to pay more in taxes. Usually, it is some of both.

Lindsey Bailey French, Legal Counsel for the Arkansas Association of Counties, warns the Pulaski County assessment cases would just be the tip of the iceberg if the “dark store theory,” is accepted by state courts. She says Walmart will continue to make appeals around the state, and other companies will likely join in.

“People need to realize the impact it would have on our local public schools and not just in Pulaski County,” Bailey French said. “Every community that has a Dollar General store, every community that has little shops like that, they don’t realize how much those property taxes help the schools.”

About three fourths of all property taxes collected in Arkansas go to the local schools. AAC estimates a $95 million annual reduction in local tax collection if the theory is utilized by all retail in the state. If it is expanded to all commercial property, the figure balloons to more than half a billion dollars.

“I don’t see any reason why no other business would not make the same claims if it were to be granted at a statewide level,” she said. “The state does not have the general revenues to step in and pick up the pieces.”

According to a November 2018 report by CityLab, “[i]n Wisconsin, at least 230 cases have been filed across 34 counties since 2015, many of them repeat appeals for the same properties, by the top three attorneys representing retailers. In Michigan, more than $75 million in tax value was lost from the rolls from related appeals between 2013 and 2015. In Indiana, an estimated $3.5 billion in property value is on the line. Texas stands to lose $2.6 billion per year if successful appeals become widespread.”

Pulaski County Judge Barry Hyde denied Walmart’s appeal, saying the comparable appraisals presented lacked credibility.

“Some of them were on the outskirts of East St. Louis, shuttered down stores,” Bailey French said. “The burden of proof is on the property owner to prove that their values are more true market value under the law than the assessor’s values.”

Walmart appealed the county judge’s decision, and now Circuit Court Judge Tim Fox will hear the cases.

However, civil litigation is now on hold in Arkansas as the state attempts to limit the spread of coronavirus.